China and Powerball Are Testing Our Financial Emotions



Financial events on both sides of the Pacific Ocean are testing the ability of us humans to keep our emotions out of our financial decisions. On one side we have fear, with China’s stock market plunge. On the other side, we have greed, with the Powerball jackpot now worth an estimated $700 million. Ironically, the default reaction of our brains to both is driven by loss aversion.

China’s CSI 300 index plunged 7.2% this morning before circuit breakers halted trading. It was the second time this week that trading was halted following a plunge in prices. Today’s drop followed a devaluation of the yuan and reflected fears about a weakening Chinese economy. Overshadowed by the headlines was a new limit on the amount of stock major corporate shareholders can sell.

The reaction of Chinese regulators was swift. First, Reuters said the People’s Bank of China intervened to reverse the decline in the yuan after the currency fell more than expected. Then the China Securities Regulatory Commission announced it was suspending the circuit breakers.

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The Week Ahead

AAII Journal editor Charles Rotblut, CFA, will speak at the AAII Milwaukee Chapter’s 26th annual midwinter retreat on Saturday, January 16.

Dow Jones industrial average components Intel Corp. (INTC) and JPMorgan Chase (JPM) will report on Thursday. Joining them will be nine other S&P 500 member companies, including Alcoa (AA) on Monday, CSX (CSX) on Tuesday and BlackRock (BLK), Citigroup (C), U.S. Bancorp (USB) and Wells Fargo (WFC) on Friday.

The first economic report of note will be the November Job Openings and Labor Turnover Survey (JOLTS), released on Tuesday. Wednesday will feature the Federal Reserve’s periodic Beige Book. December import and export price data will be released on Thursday. Friday will feature December industrial production and capacity utilization, the December Producer Price Index, December retail sales, the University of Michigan’s preliminary January consumer sentiment survey, the January Empire State manufacturing index and November business inventories.

Several Federal Reserve officials will make public appearances: Atlanta president Dennis Lockhart and Dallas president Rob Kaplan on Monday; Richmond president Jeffrey Lacker on Tuesday; Boston president Eric Rosengren and Chicago president Charles Evans on Wednesday; St. Louis president James Bullard on Thursday; and New York president William Dudley on Friday.

The Treasury Department will auction $24 billion of three-year notes on Tuesday, $21 billion of 10-year notes on Wednesday and $13 billion of 30-year bonds on Thursday.

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This month, AAII is publishing our popular year-end stock screen review and if you join AAII today we would be pleased to pass along a copy for your review.

The data in this special report is pulled from the popular Stock Screens area on and if you’re not familiar with this free members-only service, you’d be amazed at the investment ideas it can generate.

In a nutshell, AAII Stock Screens allow you to tap into the investment philosophies of promising investment professionals as well as see the resulting stock picks. With Stock Screens, you can choose one of our 60 screening approaches to build a list of winning stocks.  The stock screens and investment ideas are virtually endless and the resulting performance is top-notch. In fact, over the last 17 years, 88% of our stock screens outpaced the overall market.

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